Marketing to Consumers in Tier 1, 2, 3 Cities - China - January 2015

“Consumers in tier one to three cities make up for more than 70% of the total urban population in China, making them the target of the majority of leading companies that have been trying to increase their product user base – especially in the lower tier cities – for further growth.

However, Chinese consumers are diverse; people living in different city tiers have different spending power, live in different retail environments, with their interests and needs varying as well, which can all have business implications for companies and brands when marketing to consumers in different city tiers.

This report focuses on the following aspects when studying the differences across city tiers: consumers’ spending priorities, shopping needs and habits as well as leisure preferences.”– Laurel Gu, Senior Research Analyst

In this report, we look into the following questions:

How do consumers in tier one to three cities plan to allocate their spare money?

In which categories are consumers in tier one to three cities willing to spend more on premium products?

How can companies and brands prove high-quality products to consumers in tier one to three cities?

What are consumers’ shopping habits in tier one to three cities?

What leisure activities are consumers in tier one to three cities most interested in after work/ over the weekend and during longer vacations (eg, public holidays and paid vacations)?

What are the key differences in lifestyles between consumers living in different city tiers?

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Table of contents

Introduction

Methodology

Abbreviations

Executive Summary

Overview of tier one to three cities and consumers’ lifestyle

Figure 1: Lifestyles, October 2014

Spending priorities

How do consumers plan to allocate their spare money?

Figure 2: Interested areas for spending spare money, by city tier, October 2014

In which categories are consumers trading up?

Figure 3: Consumers who have bought premium or ultra-premium products in each category, by city tier, October 2014

Overview of the Tier One to Three Cities in China

Figure 11: Number of residents in tier one to three cities, by city tier, China, 2013

Tier one cities: busy and crowded

Figure 12: Average number of residents per city, by city tier, China, 2013

Tier two cities: catching up with tier one but still a wider gap in leisure services

Figure 13: Average wage of employed staff and workers, average price of commercial housing sales, by sampling cities, China, 2012 and 2013

Figure 14: Pictures of a hypermarket in a tier two city, Changsha, Oct 2014

Tier three cities: modern retail and foodservice yet to be developed

Figure 15: Number of hypermarket outlets from top retailers, by sampling city, China, December 2014

Figure 16: Picture of a typical “supermarket” in a tier three city, Pingxiang, China, October 2014

Figure 17: Number of restaurants from top international foodservice providers, by sampling city, China, December 2014

The Consumer – Lifestyle of Consumers in Tier One to Three Cities

Key points

High satisfaction about the home city, low concerns about living cost

Figure 18: Lifestyles, October 2014

Consumers in tier one cities: strong health concern

Figure 19: Agreement with the statements “My work keeps me busy” and “I am quite healthy”, by city tier, October 2014

Consumers in tier three cities: eager to take part in out-of-home leisure activities

Figure 20: Agreement with the statements “I prefer going out rather than staying at home during my leisure time” and “I am used to going to surrounding cities for grocery shopping”, by city tier, October 2014

The Consumer – How do People Plan to Allocate Their Spare Money?

Key points

Spending on travelling is prioritised across all city tiers

Figure 21: Interested areas for spending spare money, by city tier, October 2014

Figure 22: Example of restaurant menu featuring introduction to the special dishes with a cultural perspective, Shanghai, China, 2014

Tier three cities could be a goldmine for technology products

City tier differences in the interested areas for spending spare money

Figure 23: Consumers who are likely to use spare money to eat better and to develop a hobby, by city tier, October 2014

Investing their savings is as important as spending

Figure 24: Consumers who are likely to use spare money to invest and to save up, by city tier, October 2014

The Consumer – In Which Categories are Consumers Trading Up?

Key points

Premiumisation is happening in almost all categories across city tiers

Figure 25: Price range of products bought most recently, by category, October 2014

Tier three cities: retail development limited their exposure to premium products

Figure 26: Consumers who have bought premium or ultra-premium products in each category, by city tier, October 2014

Tier one cities: still the home market for ultra-premium products

Figure 27: Consumers who have bought ultra-premium products in each category, by city tier, October 2014

Tier two cities: more value-driven consumers

Figure 28: Consumers who have bought medium or low-priced products in each category, by city tier, October 2014